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      "text": "The multiple denominator must represent a flow to all claimants",
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      "text": "Sales volatility: EV/sales is frequently applied to technology firms, which are likely to have negative cash flow and/or earnings while they are in their initial growth phase. But these companies frequently have highly volatile sales as well.",
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      "text": "EV/sales is also useful in identifying restructuring potential. Net margin is a key driver of this measure; low profitability (low net margin) would result in a low value for a given level of sales.",
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      "text": "EV/sales is a crude measure, but least susceptible to accounting differences; it is equivalent to its equity counterpart, price to sales, where a company has no debt.",
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      "text": "EV/sales is useful when accounting differences among comparables are extreme, or where profit or cash flow figures are unrepresentative or negative.",
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      "text": "Be careful that the sales figure is representative; generally EV/sales should not be used for companies with variable, periodic sales, such as property developers.",
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      "text": "Revenue recognition policies: Sales are not unaffected by accounting policies. Sales can be substantially affected by different interpretations of accounting standards in such areas as: Use of gross versus net revenue in recording sales on agency transactions; Treatment of sales where a customer has the right of return; Long-term contracts accounted for under percentage of completion or completed contract methods",
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      "text": "There are many different enterprise value multiples that can be calculated, depending on the circumstances. What is most important is that the denominator represent a flow to all claimants on enterprise cash flow.",
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      "text": "Caveats There are three caveats in using this multiple:",
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      "text": "Definition: Core EV/sales.",
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      "text": "Formula: EV/Sales = (ROIC - g) / (ROIC x (WACC - g)) x (1 - T) x M",
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